Grand Corporation Transfers 40% of Its Assets Having an Adjusted

question 48

Multiple Choice

Grand Corporation transfers 40% of its assets having an adjusted basis of $600,000 and an FMV of $800,000 to New Corporation in exchange for 75% of its single class of stock. Grand Corporation is owned equally by Annie and Betsy who are unrelated. Annie's basis for her Grand stock is $300,000 and Betsy's basis is $400,000. Annie exchanges all of her Grand stock for all of the New stock received in the exchange. Which of the following statements is correct concerning these transactions?

• A)Grand Corporation does not recognize a gain on the asset transfer to New Corporation or the stock distribution to Annie.
• B)Annie recognizes a $500,000 capital gain on the exchange of the Grand stock for the New stock.
• C)Annie's basis in the New stock is $300,000.
• D)Grand's basis for the New assets is $600,000.

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Definitions:

Nonprofit Organizations

Organizations that may provide goods or services but do not have the fundamental purpose of earning profits.

Organizational Chart

A visual diagram that represents the structure of an organization, showing ranks and relationships between departments and positions.

Financial Assets

Instruments that represent an entity's right to receive cash or another financial asset from another entity, including stocks, bonds, and bank deposits.